Banks and oil firms to foot the bill for budget

Britain's Chancellor of the Exchequer George Osborne walks away after holding his budget case for the cameras outside number 11 Downing Street, before delivering his budget to the House of Commons in London March 23, 2011.
REUTERS/Stefan Wermuth

LONDON The government unexpectedly hiked taxes for oil producers and banks in Wednesday's budget to help fund broader corporation tax cuts and lower fuel duty for hard-pressed consumers.

"Today's budget was in general a good budget for business, but there were a few offsetting disappointments," said Anneli Collins, head of tax policy at KPMG.

"Two business sectors will be feeling hard done by today - the North sea oil and gas producers ... and the banks."

Presenting his 2011 budget, Chancellor George Osborne raised a levy on bank balance sheets to 0.078 percent from 0.075 previously, ensuring they do not benefit from a cut in Britain's corporation tax rate to 23 percent.

"Given the government's objectives of enhancing the competitiveness of the UK tax system and for the City of London to remain a world leading financial centre, it is somewhat surprising," said Matthew Barling of PricewaterhouseCoopers.

Analysts said that while the move would compound growing unease in Britain's economically critical banking sector, it was unlikely in itself to be a game changer for chief executives considering moving their headquarters to other jurisdictions.

"In the overall scheme of things this is not actually a very big deal," said Mike Trippitt, analyst at Oriel Securities.

The latest increase in the levy, introduced by a government facing intense public pressure to punish the banks for their role in the global financial crisis, will raise another 100 million pounds from 2013/14, the Treasury estimated.

After topping up the levy in February and on Wednesday, it is now expected to raise 1.9 billion pounds in total in the 2011/12 fiscal year, rising to just over 2.6 billion in 2012/13.

"Without satisfactory double taxation arrangements in place, this is putting banks operating in the UK at a long term disadvantage - both internationally, as they compete against banks not paying such a levy, and domestically, as they compete with other sectors of the financial services industry," British Bankers Association Chief Executive Angela Knight said.

The British government is the biggest shareholder in lenders Lloyds and Royal Bank of Scotland having bailed them out in the wake of the Lehman Brothers collapse.

Analysts believe there is a risk, however, that Europe's biggest bank HSBC and Standard Chartered, whose businesses are focussed on Asia and who escaped the financial crisis relatively unscathed, will move their headquarters away from London.

OIL HIT

Britain's oil industry, another major contributor to government coffers, also responded angrily and shares fell on Wednesday after Osborne raised a supplementary tax charge on oil and gas production to 32 percent from 20 percent.

"Today's move in the budget runs counter to the government's stated desire to promote growth, jobs and exports," Malcolm Webb, chief executive of industry group Oil & Gas UK said. "This change in the tax regime will decrease investment, increase imports and drive UK jobs to other areas of the world."

Shares in the likes of Enquest, Encore Oil, Ithaca Energy, Nautical Petroleum and Valiant Petroleum all fell between 5 and 12 percent. Canada's Nexen, which operates the North Sea's Buzzard oilfield, also fell sharply.

Seeking to calm public anger over rapidly rising petrol prices without undermining efforts to restore Britain's battered public finances, Osborne introduced the increase to offset changes to planned increases in fuel duty.

"Businesses and consumers will benefit from reduced fuel taxes, but the increased tax on North Sea oil and gas could be counterproductive, and will create uncertainty for future investment," CBI director general John Cridland said.

Numis analyst Sanjeev Bahl said the move risked reducing the incentive to invest in mature North Sea oilfields, potentially shortening their lives as productive areas for exploration.

"Today's tax hike was unexpected and has a significant negative impact on company valuations," said Bahl.

Osborne said to avoid discouraging investment, the measures could be reversed if the oil price fell sharply from its current heady heights around $116.

Next In Business News

LONDON Britain's trade deficit narrowed more than expected in October but overall there was little sign exports were getting much help from sterling's fall since Britain voted to leave the European Union in June, data showed on Friday.

LONDON Large banks in Britain want the UK government to allow their industry to remain subject to EU laws for up to five years after Brexit, a move likely to enrage eurosceptics who want to break away from the bloc's legal system as soon as possible.

LONDON Britons expect a sharp rise in inflation over the coming year following the plummet in the value of sterling after Britain's vote to leave the European Union, and more now believe a hike in interest rates is on the way, a Bank of England survey showed.

Trending Stories

Sponsored Topics

Reuters is the news and media division of Thomson Reuters. Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Learn more about Thomson Reuters products: